Limits to Growth, Part II

The global economy has pushed the limits of linear consumption so far that the question as to whether or not we can sustain our current model of economic development is one that can no longer be ignored.

The current economic model of development, based primarily on linear growth, has been criticized on the basis of an overwhelming fixation on profitability, GDP, and labor productivity as indicia of success. GDP growth has long been the natural goal of many different societies across the globe. Many postulate that in our world anticipated to grow to 9.7 billion humans by 2050 (United Nations, 2015), the current GDP growth rate cannot continue at its current pace, as such a pace will deplete much-needed nonrenewable energy and material resources. Somewhat paradoxically, energy production is both a determinant of economic growth (e.g. through revenue generation and positive employment), as well as an instigator of harmful environmental effects.

The fundamental question that must be asked is if it is possible to simultaneously increase economic growth and advance environmental and social prosperity.

Limits to Growth, Part I

The first widely recognized intuition of the potential negative effects of exponential economic growth was introduced to the world in the form of a novel, “Limits to Growth,” written in 1972 by Donella H. Meadows, Dennis L. Meadows, Jorgen Randers, and William W. Behrens III.

Limits to Growth used system dynamics theory and the World3 simulation model to examine the consequences of exponential economic and population growth, specifically analyzing twelve scenarios of different environmental outcomes from global development over two centuries: 1900 to 2100. The conclusion was that the world had already overshot* many of our limits and that business-as-usual would result in an eventual global collapse in the 20th-21st century from resource constraints and increasing pollution, including hazardous effects from climate change.

While the book was criticized by academics, economists, and businesspeople for the methodology, projections, and conclusions, four decades later, in 2014, The Guardian published an article discussing a Dr. Graham Turner who had gathered data from the United Nations, the Food & Agriculture Organization, the U.S. National Oceanic and Atmospheric Administration, and many other sources, in order to test the Limits to Growth scenarios. The results showed a world very closely matched to the “business-as-usual” scenario espoused in the book: the data was strikingly similar to the forecasts put forth in Limits to Growth.

green-economy

The Degrowth Movement

Sustainable degrowth is defined by renowned environmental scientist, Giorgios Kallis, as: “A socially sustainable and equitable reduction (and eventually stabilization) of society’s throughput.” Kallis further defines throughput as: “The materials and energy a society extracts, processes, transports, and distributes, to consume and return back to the environment as waste. Throughput is the “food” of the social body’s metabolism.”

While sustainable degrowth is not synonymous with GDP degrowth, sustainable degrowth should ultimately lead to the natural decline of GDP. It is important to note that the argument for sustainable degrowth is not synonymous with an argument for negative GDP growth. Rather, degrowth can and should, as hypothesized by Kallis, increase welfare and improve environmental conditions under the appropriate conditions and policies. The chief concern of the degrowth movement is the manner in which GDP can decline in a socially and environmentally sound way. The degrowth defense is not an argument for recession; rather “a vision of a smooth process of downshifting the economy through institutional changes, managing collectively a ‘prosperous way down'” (Odum and Odum).

One answer, it seems, is selective degrowth, such that resources are redistributed between public and private consumption and even between generations. Selective degrowth is complex. Who decides which consumption activities should and should not continue to grow? The government? The people? A third party environmentally-focused organization? Someone else?

This so-called selection cannot be left to market forces alone. Kallis argues that degrowth will only be possible through radical institutional changes, such that the resulting system can no longer be called capitalism. It seems reasonable to conclude that the capitalist markets we live among today will not voluntarily choose the path of degrowth. The market tends to avoid or ignore risk until faced with abrupt crisis: a lost lawsuit, legal predicament, or act of violence. The terrifying question that is unaddressed by most researchers is what it will take to spur action. What catastrophic event needs to occur to shake the markets awake?

The Green Economy Movement

Some assert the manner in which to transform the industrial state is a movement towards a green growth economy.  In fact, the green growth proponents (Giorgos Kallis, Dr. Peter Victor, Dr. Tim. Jackson, among others) suggest such an economy is the only way forward. The three further argue that the following key structural economic changes are necessary:

  1. a reduction in working hours
  2. the encouragement of society to engage in more unpaid work
  3. the replacement of private-sector funded economic activities with community-funded investments in more sustainable enterprises

The green economy crowd believes that the green economy has the potential to create and accelerate meaningful and revolutionary change towards sustainable development. The movement suggests policies and incentives to create a low-carbon state of economic activity.

Yet, other equally-as-adept economists contend that green growth will be inadequate to achieve sustainable development. Sylvia Lorek and Joachim Spangenberg express their doubt as such: “Green economy/green growth…is a new terminology for what is known since 40 years as ecological modernization. It is indeed overdue, but with its focus on efficiency and innovation, it cannot guarantee to fulfill the Brundtland sustainability criteria. A factor analysis based on the I*P*A*T formula demonstrates how optimistic the assumptions regarding future technologies must be to support the green growth concept.” Lorek  and Spangenberg argue that “green growth” is nothing more than a buzz phrase, and a true sustainable economy is formed by a society that lives within its ecological boundaries. As such, sustainable economies are formed through sustainable forms of consumption, including the resource consumption necessary for production. Efficiency gains are needed along supply chains in addition to, and not instead of, living and working conditions which allow for a “decent life”. Importantly, a sustainably-developed economy shifts resources and meets the needs of everyone.

Looking Ahead:

In 1987, the World Commission on Environment and Development defined a sustainable society as: “one that meets the needs of the present without compromising the ability of future generations to meet their own needs”. The idea “bigger is better” is a mantra of the past. Economic progress is being redefined, as businesspeople, policy makers, investors, and consumers are beginning to realize that our current model of linear consumption has pushed the boundaries. What, then, is the best way forward?

A multifaceted government approach focused on both a green economy and selective degrowth is necessary in order to achieve the careful balance of simultaneous economic growth and environmental/social prosperity.

Market prices are key. Incorrect prices produce too much or too little and do not maximize utility. Government is needed to adjust prices to reflect real costs (including externalities), whether by tax or subsidies or both. Government could ration or restrict resources, which would effectively raise prices. Mandating miles per gallon for car manufacturers would, for example, raise the price of the gas guzzlers relative to efficient cars to inventive the adoption and manufacturing of efficient vehicles. Similarly, a carbon tax on emissions would raise the price of carbon.  However, raising prices does not lower overall utility. A shift in tastes might be needed, such that people value doing good by the environment. Social advertising might be necessary to shift utility curves.

In such a price-adjusted economy, the poor will get hit the hardest. The rich can afford the Tesla, the poor cannot. In a global context, what is needed is a reallocation of resources from the “haves” to “have nots”. Subsidies are a must.

Such a multifaceted approach should consider the following:

Incentive structures (taxes, subsidies, penalties) to punish negative environmental behavior. Government could shift the allocation of capital away from energy-inefficient industries and towards industries and businesses that are contributing to a green economy. While both positive and negative incentives should be in place, taxes and regulations are imperative, such as a tax on carbon emissions. This is a complex proposal, to be discussed in further detail in a future blog post. Access is also important, such as policies that make aspects of a sustainable lifestyle convenient at the local level: ease of recycling, infrastructure for public transportation, encouragement of ride-sharing or reusable items in a society. Employment research (Ashford, Kallis) suggests that a shorter work week can potentially lead to a more sustainable future through higher productivity, less energy-intensive activities (including, for example, commuting to work) and happier employees.

Government should also lead by example, exerting positive low-energy activity, as well as serve to put policies in place to strengthen the community. For example, government could establish community projects around urban planning, community clean-up projects, and/or community-based renewable energy projects. Projects should focus on the sharing and limited use of energy sources. Actions at the community level play a crucial role, as such actions can stimulate changes at the national level, either by community-applied political pressure, or by setting examples of successful local implementations of policy. A sound policy must focus on strengthening local economies. Health, Education, and Natural Resource Protection are imperative for a prosperous society and aforementioned multifaceted government approach must also set policies in place to increase access to health and education, and to preserve species.

Resource reallocation towards the developing world is vital, as today’s largest economic issues include increasing unemployment, and heightening income, poverty, and education gaps. Government should strive to decrease the pervading economic inequality between the developing and developed world. While fossil fuel and energy intensive activities should still be regulated in developing economies, it is clear struggling nations need political help. One suggestion would be to create maximum production ceilings for certain energy-intensive industries. In this way the developed world, already likely hitting such ceilings, would be forced to curtail production and consumption, allowing the developing world to catch up. Another important policy implementation for the developing world is subsidies, such as those in place to help foster easy trade and access to resources.

Note the above policy suggestions are just a brief overview of suggested regulatory changes, barely scratching the surface of the intricacies of each, but for the context of this already very long blog, hopefully sufficient. It should be noted that such recommendations fall short in mentioning the utter complexity in implementation, particularly across geographies and classes.

Is it already too late?

There is a school of thought, oozing with skepticism, that no matter what actions are taken from here on forward, the amount of carbon already emitted in the air, and the amount of human-contributed environmental destruction, is too vast. That nothing can be done to reverse the damage that’s already occurred.

This thinking is faulty, as it only leads to inertia.

This what’s-the-point mantra will lead to our eventual demise. We must move forward. It is not too late and there are amazing sustainable initiatives being implemented across the globe, as well as countless missed opportunities created mostly by lack of knowledge and/or effort. The adoption of rapidly improving technology, business incentives aligned with environmental friendliness and social prosperity, shifting mindsets at the community level regarding consumption and production habits, and appropriate regulatory procedures in place can and will help mitigate the current climate crisis. No one stakeholder can “solve or fix the climate crisis” alone, a collective group effort is needed. The future of humanity is dependent upon this.


The content of this article has been inspired by the teachings of an MIT Sloan Class, Course 15.657, taught by Professor Nicholas Ashford, “Technology, Globalization, and Sustainable Development.”

*To overshoot means to go too far, to grow so large so quickly that limits are exceeded. When an overshoot occurs, it induces stresses that begin to slow and stop growth. The three causes of overshoot are always the same, at any scale from personal to planetary. First, there is growth, acceleration, rapid change. Second, there is some form of limit or barrier, beyond which the moving system may not safely go. Third, there is a delay or mistake in the perceptions and the responses that try to keep the system within its limits. The delays can arise from inattention, faulty data, a false theory about how the system responds, deliberate efforts to mislead, or from momentum that prevents the system from being stopped quickly” (Limits to Growth, 1972).

Solely Solar

Ever the company to shock the world with groundbreaking energy news (think Tesla Opens All Patents, Tesla Acquires SolarCity, Musk Proclaims His Employees Brain Dead) – Tesla Motors has done it again.

Subsequent to the acquisition of SolarCity, the new end-to-end clean energy company, Tesla Motors, decided to walk the talk…by powering the entire island of Ta’u in American Samoa with solar power.

“I recall a time they weren’t able to get the boat out here for two months. We rely on the boat for everything, including importing diesel for the generators for all of our electricity. Once diesel gets low, we try to save it by using it only for mornings and afternoons. It’s hard to live not knowing what’s going to happen. I remember growing up using candlelight. And in 2016, we were still experiencing the same problems.”

“This is part of making history. This project will help lessen the carbon footprint of the world.”

“Living on an island, you experience global warming firsthand. Beach erosions and other noticeable changes are a part of life here. It’s a serious problem, and this project will hopefully set a good example for everyone else to follow.” – Keith Ahsoon, local island resident.

The implications are tremendous.

Among the many challenges of living on a remote island is the lack of affordable, reliable power. Such a deficiency means that hospitals, schools, and police and fire stations are forced to worry about rationing energy and power outages.

Not anymore.

Tesla Motors, with funding assistance from the Environmental Protection Agency (EPA), the Department of Interior, and the American Samoa Power Authority, has enabled this island, to run without sunlight for an entire three days. Ta’u island, located over 4,000 miles from the West Coast of the United States, is now powered by a 1.4 megawatt solar microgrid (comprised of 5,328 panels), along with 6 megawatt hours of battery storage from 60 Tesla PowerPack storage batteries. The solar switch took one year to complete, at an estimated cost of $8 million, and will offset an annual 109,500 gallons of diesel.

Tesla and Solar City have enabled energy independence for the 600 people living on Ta’u, an island that was previously fueled by carbon-guzzling diesel generators that arrived sporadically by boat. Irregular shipments to this island equated to severe power rationing. The hazards of power intermittency are a nightmare of the past.

An Imperfect Marriage?

teslasolar

On June 20th, 2016, Tesla (TSLA) made a $2.48 billion, all-stock offer to purchase all outstanding shares of SolarCity. This near-$3 billion offer represents an approximate 21-30% premium over the closing price of SolarCity’s shares, based on the closing price on June 20th and the 5-day volume weighted average price of TSLA stock. In November, the deal finally closed around $2.6 billion, with more than 85% of Tesla shareholders voting in favor. Tesla acquired nearly $3 billion of SolarCity’s debt.

Although Musk has described Tesla’s acquisition of SolarCity as “common sense” and “blindingly obvious”, some Wall Street analysts have been watching from afar with a wearier eye. Why? Musk is playing the long game here; the acquisition of SolarCity requires a substantial amount of cash to remain operational with no true short-term payback. SolarCity is not exactly the epitome of strong financials; the company posted an EBITDA of negative $507 million last quarter, equating to a net loss of 15 cents per every dollar of revenue. In fact, SolarCity is riddled with over $6 billion of liabilities, declared by Goldman Sachs just minutes before the deal broke, as “the worst positioned name” in the solar industry.

Musk has used both his own capital and Tesla shares to secure this debt, inducing a great deal of skepticism regarding the use of Tesla’s capital for this deal. “And both companies burn through cash like they print it themselves. As noted by the Wall Street Journal’s Heard on the Street column, Tesla torches 50 cents for every dollar in sales, while SolarCity burns nearly $6 for every dollar in sales” (The Verge).

Nonetheless, financial skepticism in 2016 is par for the course, and no merger in the history of financial engineering has been accepted with arms completely wide open.

“Tesla’s mission has always been tied to sustainability. We seek to accelerate the world’s transition to sustainable transportation by offering increasingly affordable electric vehicles. And in March 2015, we launched Tesla Energy, through which the Powerwall and Powerpack allow homeowners, business owners and utilities to benefit from renewable energy storage. It’s now time to complete the picture.” – Elon Musk

Should Elon Musk’s visions come true – and the genius “Iron man” has been known to be right once or twice before – Tesla would be perfectly positioned to capitalize on a future in which our homes are powered by solar power and our cars are electric. Not to mention the fact that SolarCity is run by Musk’s cousin, Lyndon Rive. Musk, while a minority owner, is still the company’s largest shareholder. Oh, and Tesla’s home battery, otherwise known as the Powerwall, generates electricity from  – take a wild guess – solar energy.

A brief aside, to applaud the man who is tirelessly striving to bring sustainable transit to the masses – and who has truly revolutionized our world.

The real question is how Musk has time for all of his companies. He is human (we think) after all. A lesson: Musk doesn’t ask himself why, rather why not? “Creating a company is almost like having a chid. It’s almost like, how do you say your child should not have food? It’s actually been a very difficult journey. The first time I took a week off, the Orbital Sciences rocket exploded and Richard Branson’s rocket exploded. The second time I took a week off, my rocket exploded. The lesson here is don’t take a week off.” (Elon Musk)

Meanwhile, on Island T’au…

Regardless of the financial prudence (or lack thereof) of the Tesla-SolarCity deal, the fact that Tesla + SolarCity has powered an entire island is impressive, to say the least. Importantly, the powering of T’au is exemplary of solutions that are viable today – not “maybe solutions” to be considered decades down the road. Islands and other remote areas of the world that have conventionally relied on fossil fuels can seamlessly switch to renewable energy sources. Musk has, once again, helped us expand the boundaries of possibility.

 

Artificial Intelligence: Society’s Biggest Threat or Savior?

“Artificial Intelligence is a misunderstood technology that can be harnessed to help solve global issues such as cutting CO2 emissions, food waste and water shortages.” – EC Newsdesk, 2016. “(Stephen) Hawking and (Elon) Musk have already expressed heightened caution regarding AI technologies. Musk has recently referred to artificial intelligence as humanity’s ‘BIGGEST EXISTENTIAL THREAT’, while Hawking […]

The Driverless Future

A Note To My Readers: It has been a strange, emotional week for the nation. Regardless of the potential implications of the new political structure on climate change progress, The Sustainable Investor is proceeding forward with optimism only, and forging ahead with its mission: to facilitate dialogue, raise awareness, and encourage action towards positive environmental and social change. The advent of electric vehicles, […]

The Era of the Avocado Shortage

Once a rare treat enjoyed primarily by West Coast and other trendy cities fortunate enough to afford importing or growing the tasty fruit, the avocado has become the focal point of America’s most prominent dishes of today: cue the avocado toast, the guacamole and the avocado-based smoothie.

Avocado, while still trendy, is no longer an elite food group; rather, it is America’s preferred method of consuming “healthy fat”, as portrayed by the featuring of avocado in Subway sandwiches, Panera bread meals, and on the menu of nearly every Southwestern and breakfast restaurant in the United States. Not to mention the fact that avocado has become the number one purchased item in many U.S. grocery stores.

avojokes

The trend of “healthy fat”, as opposed to just “fat”, has vastly increased the popularity of the beloved smooth green fruit.

“We fought the health message for years and years. A fat was a fat was a fat. Now the stars have aligned.” – Mike Browne, Marketing Committee Chairman, Mexican Hass Avocado Importers Association.

In January 2015, The Washington Post published “The rise of the avocado, America’s new favorite fruit“, highlighting the following chart:

avocado

The Rise and Demise of the Avocado:

First, it was chocolate. Then, beef prices increased immensely. Now, climate change is threatening the existence of the avocado.

The list goes on. Our crop yields are slowly, but surely, being negatively impacted by climate change, which is serving to increase prices in the short-term, but has the long-term potential of eradicating our favorite foods.

drought

The above is a picture taken three days ago of a sign prominently displayed outside of a beloved coffee shop in Arlington, Virginia called Northside Social.

This is not an isolated occurrence. Similar signage has appeared all over the United States in the past weeks:avoshortage  avoshortage2

avoshortage3

The reality of the matter is that no amount of  “thank you for understanding” will lead to customer acceptance of sudden price hikes.

So, What’s Happening?

California and Mexico are responsible for 40% of the entire world’s Hass avocado production (there are a few other forms of avocado, but Hass avocados are by far the most common). Avocado growers and pickers in Mexico have gone on strike to protest their low pay, described by The Washington Post as “the biggest disruption to avocado imports in history.” The extent of the issue is not small. Typically, 40 million pounds of avocados per week are shipped from Mexico to the U.S., a quantity that decreased to 13 million pounds just two weeks ago, according to NBC7.

As expected, the demand-supply imbalance is causing massive price increases. Adding insult to injury is the timing of this strike: California’s avocado production season has just ended. And, California is currently 100% drought-stricken. Nobody is motivated to sell avocado at lower prices when it is unclear just how many avocados will be able to grow next year.

According to Scientists from the Lawrence Livermore National Lab, hotter temperatures will cause California avocado crop yields to decline by 40% over the next couple decades.

Just How Big Is This Problem?

How much avocado are we actually eating? From 2002 – 2015, U.S. avocado consumption grew from 484 million pounds to over 2.1 billion pounds.

Price increases are being quoted at a few different numbers, but the trend is consistent: up, up and away. Restaurant owners Engman and Lopez of San Diego’s Como Ceviche seafood restaurant reported that the same case of avocados that previously cost $40-$50 is now a $125-per-case expense. Produce wholesaler, John Vena, reported this past July that the wholesale price of one avocado (when purchased in the customary box of 48 avocados) had increased from $1.00 to $1.70.

Beloved burrito chain, Chipotle, has already attempted to warn its customers, stating in its annual report: “Increasing weather volatility or other long-term changes in global weather patterns, including any changes associated with global climate change, could have a significant impact on the price or availability of some of our ingredients. In the event of cost increases with respect to one or more of our raw ingredients we may choose to temporarily suspend serving menu items, such as guacamole or one or more of our salsas, rather than paying the increased cost for the ingredients.”

The world did not take this news lightly, and a flurry of angry tweets coerced Chipotle to publicly reassure customers that guacamole would be staying on the menu. For now.

Chipotle guacamole production requires an average of 97,000 pounds of avocado daily, equating to approximately 35.4 million pounds of guacamole per year. Exacerbating the issue is the fact that Chipotle has committed to using locally grown produce (farms within 350 miles of the restaurants in which the food is served), which puts the company’s 288 California restaurant locations at severe risk. The company has mandated itself to source avocado from the very state that is running drier by the minute. The state that is eating the most avocados is also in the heaviest drought.

Chipotle claims that climate change isn’t affecting its guacamole. A flurry of media articles have been published as the company attempts to keep its customers content. But what Chipotle has not yet revealed is how high its willingness to pay is in order to ensure this remains as such. Because one thing is clear – Chipotle is shelling out lots of dough (not the delicious kind) in order to keep guacamole on its menu.

The drought is only getting drier. Avocado lovers: you might want to consider stocking up on avocados on your next grocery store run.

CSR Meets Impact Investing: Introducing the Modern Wave of Corporate Venture Capital

The old model of capitalism is under siege. There is a growing consensus that certain aspects of the current economic system will not (cannot) endure in our 7.5 billion-humans-and-rapidly-growing world. As such, in recent years, we have observed the beginnings of the “circular economy”, “impact investing”, and “sustainability”. Yet, we have also observed a world of linear growth outpacing resources, increasing inequalities, escalating greenhouse […]

Before It’s Too Late

“Art, like science, is restless. Art, like science, feeds on revolutions. To reach through the screen is no longer enough to state our empathetic desires. Today’s storyteller yearns for a sharper and more precise tool by which to power the machines of empathy. Virtual Reality is that tool. It is the apex, the hilt, the child […]

The Necessity for a Circlular Economy in a World that has Pushed the Limits of Linear Consumption

We are living in a world with increasingly finite resources. The old proverb, “one man’s trash is another man’s treasure” has resurfaced as economists, business leaders, and policymakers are rethinking the global economy. Mindsets are shifting away from a focus on linear consumption and towards circular logic. As such, the commitment towards creating a circular economy on behalf […]

Singularity University is Architecting the Future of Humanity

Our mission is to educate, inspire and empower leaders to apply exponential technologies to address humanity’s grand challenges.   Meet Peter Diamandis. You may recognize him as the brains behind the XPRIZE Foundation, an innovative engine of visionaries and futurists formed as a result of Diamandis’ belief that highly incentivized competition empowers solutions that surpass the boundaries of human potential. Solutions that were […]

Solar-Powered Airplane Flies into Unchartered Territory

Two gentlemen. One airplane. Zero fuel. A solar-powered airplane – and two inspiring pilots –  just wrote the next pages of aviation history by completing a feat that was once deemed impossible: a flight around the world using zero fuel. When Bertrand Piccard, psychiatrist, explorer, and aeronaut, and André Borschberg, engineer, entrepreneur, and pilot, announced their vision of […]